Question

The manager of the Personnel Department at King Enterprises has been reading about time-driven ABC and wants to apply it to her department. She has identified four basic activities where her employees spend the most time: Interviewing; Hiring, Assessment, and Separation Processing. The Department employs five staff who perform these activities. The manager provides the following estimates for the amount of time it takes to complete each of these activities:

• Interviewing: 40 minutes;
• Hiring: 60 minutes;
• Assessment: 85 minutes;
• Separation processing: 95 minutes.

Employees in Personnel work 35-hour weeks with four weeks for vacation. Of the 35 hours, five are reserved for administrative tasks, training, and so on. The costs of the personnel department, including any allocated costs from other staff functions is $1,404,000. During the year, Personnel conducted 1,200 interviews, made 405 hires, made 2,850 assessments, and had 235 separations.

Required:

a. What is the cost per minute for activities in Personnel?

b. What is the cost of interviewing and hiring one employee?

c. How many minutes of unused capacity did Personnel have for the year?

d. What was the cost of the unused capacity in Personnel?

Answer 1

Answer:
a. Computation of cost per minute for activities in Personnel
Given data, Total hour Worked = 35 hours worked (-) 5 Reserved hours for Administration                                        = 30 hours Total week in a year =   52 Weeks No. of Weeks worked = 52 weeks - 4 vacation weeks = 48 weeks No. of employee staff = 5 Total number of Minutes Available                        = 5 employees * 48 week * 30 hours * 60 Minutes per hour                        = 432,000 Minutes Cost per Minute   = Total cost / Total Minutes available                                     = $1,404,000 / 432,000 minutes                                    = $3.25 per minute
Cost per minute for activities in Personnel	$3.25
Minutes for Interviewing and hiring    =   (40 + 60 ) minutes = 100 Minutes Cost of per minute = $3.25 per inute Total Cost of interviewing and hiring = $3.25 x 100 minutes                                                                             = $325
Cost of interviewing and hiring one employee	$325
Interviewing (1,200 interview * 40 Minutes)	48,000
Hiring (405 hires * 60 Minutes)	24,300
Assessment (2,850 assessments * 85 Minutes)	242,250
Separation Processing (235 Separation * 95 Minutes)	22,325
Total minutes used	336,875
Unused Minutes   = Minutes Available (-) Minutes used                                                  =   432,000 (-) 336,875                                                  = 95,125
Minutes of unused capacity	95,125 minutes
Cost of the unused capacity     = Unused minutes x Cost per minute                                                                             = 95,125 x $3.25                                                                             = $309,156.25
Cost of the unused capacity	$309,156.25